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Road construction companies struggle to survive

Road construction firms both big and small say the state of the industry today is dire. "I don't even want to talk about it," said Dušan Masaryk, financial director of Slovasfalt, a Bratislava-based road construction company.
Gone are the days when the state under Prime Minister Vladimír Mečiar took huge loans to pay for highway projects that were busily finished before election day. Instead, a more fiscally responsible new government halted construction plans in 1999 causing a massive decline in the construction industry. Besides lack of business, firms face the added task of collecting money for work already done, creating a vicious circle in which no-one can pay anyone.


Then-Prime Minister Vladimír Mečiar used stars such as Claudia Schiffer to promote his highway programme; the current government says it is still paying the bill, and has scaled down operations.
photo: TASR

Road construction firms both big and small say the state of the industry today is dire. "I don't even want to talk about it," said Dušan Masaryk, financial director of Slovasfalt, a Bratislava-based road construction company.

Gone are the days when the state under Prime Minister Vladimír Mečiar took huge loans to pay for highway projects that were busily finished before election day. Instead, a more fiscally responsible new government halted construction plans in 1999 causing a massive decline in the construction industry. Besides lack of business, firms face the added task of collecting money for work already done, creating a vicious circle in which no-one can pay anyone.

Masaryk's Slovasfalt was a case in point. "Our last year's contracts decreased rapidly, and we didn't even get paid for all of the projects we have done," said Masaryk.

Slovasfalt saw a 50% decline in employment compared with 1999, and reported a rapid decline in turnover from 750 million crowns ($ 17.8 million) in 1998 down to 315 million crowns ($7.5 million) in 1999.

"If we got paid it would not be so bad for us, but we have a total of 38 million crowns ($0.9 million) in unpaid bills that firms for which we worked or our former contractors still owe us," said Masaryk.

Slovasfalt was not alone in their troubles. "The financial situation of construction companies is extremely difficult these days," said Milan Cagáň, an executive at Banské stavby construction company. "From 700 employees in 1998, we are now down to 500."

According to Masaryk and Cagáň, everybody owed everybody in the construction business. "We served as sub-supplier to bigger firms like Hydrostav," said Masaryk. "But we didn't get paid from Hydrostav because they weren't paid by the contractor. In the end, we cannot pay our own people or smaller companies who supply us with materials. There seems to be no way out of this circle," he said.

Jozef Macejko, Slovak Transport and Telecom Minister, agreed that 1999 had been a critical year for road construction firms. The state, he said, had had a hard time finding reasonable loans to be able to pay for work done in 1998. According to Macejko, two billion crowns ($47.6 million) had been paid up in September 1999 for works carried out during the Mečiar government in 1998.

"In 1999, the state invested seven billion crowns ($166 million) into road construction," said Macejko. "But from this money we had to pay for works in 1998, plus one billion ($23.8 million) was used for buying land and project works," he said.

There is no doubt 1999 was a tough year, as the numbers show. According to the Statistics Office, construction output in 1999 decreased by 25.8% compared to 1998, while the number of employees decreased by 9.4% down to 136,900 people.

Even the biggest Slovak construction firm, Hydrostav, which is building the National Bank of Slovakia tower in Bratislava, had not been able to survive 1999 without a rapid reduction in its workforce. Milan Jaňovka, Hydrostav's Business Director, said that Hydrostav employed 5,200 people at the end of 1999, down 2,000 compared to 1998.

Macejko sympathised with construction companies, but said that the state couldn't help them get contracts just because they were Slovak. "Contracts to companies are given out according to set criteria, and the ministry can't give preference to one construction firm over another," he said. "Companies have to make realistic offers when competing for contracts."

But Pavol Čunga, Váhostav's assistant to the general director, said even if they came with realistic offers, firms found slim pickings in the reduced construction trade. "There are simply no contracts to go after," he said.

Macejko, however, noted that good times lay ahead for Slovak companies in 2000. "We expect that in 2000 Slovak companies will have 55% more work to do than they had last year." He added that this year the ministry planned to invest 8.3 billion crowns ($197.6 million) into road construction.

One option for Slovak construction firms to cope with their bad financial situation was to compete for contracts abroad. "We moved our working capacities abroad," said Banské Stavby's Cagáň. "State investment was extremely low, so we saw no other way to survive other than to move to Germany and Slovenia to find work."

He explained that Banské Stavby was able to compete with foreign construction firms largely due to the cheap labour Slovak firms could offer compared to foreign firms.

But this possibility did not seem realistic to other companies. "There is extremely big competition abroad, and even if we offered cheap labour, to gain a contract we would have to have competitive mechanisms and would have to prove that our company was financially sound to carry out the works," said Masaryk. "There is little likelihood that we would be able to do that."

But if Macejko keeps his promise, the situation will not be so gloomy in the future. "Companies that participated in road construction last year should have an easier situation. Road construction can continue, and the works will be regularly paid off," he promised.

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